Uncovering New Water Management Markets in the Unconventional Oil and Gas Landscape
By Marcus Oliver Gay
Development of shale gas and tight oil resources has created huge growth opportunities beyond that of traditional oil and gas midstream pipeline and oil field service companies. The operational risks and production complications associated with water management through drilling, completions and production are spurring innovation and opportunities for new business development. Constraints on water availability and wastewater disposal have shown to significantly influence operational decisions and impact the economic return for wells across the United States. Within the water management lifecycle, the development of new technology and operational strategies for water distribution within the oil patch is a key area of growth addressing these critical concerns.
For key unconventional plays and associated oil and gas producing states, the information and insight firm IHS estimates this water management market volumetrically at 18 billion barrels per year, an amount approximately equal to 2 percent of the water volume used annually in the United States for agricultural uses, which the U.S. Geological Survey estimated at 1.1 trillion barrels in 2005. Water management market size accounts for water volumes handled (both used and produced) within all drilling, completion and production activity in the regions included in this study. Aggregate market spending on water management products and services from 2013 to 2022 shows less than 15 percent growth. However, just as water management issues are hyper-regional and poorly appreciated at a national level, dramatic growth opportunities can be found within the market geographically and throughout the value chain.
Today water transportation by truck dominates the oil and gas water management market. IHS anticipates this market share to decline, driven primarily by a significant increase in the direct reuse of oil field wastewater for completions fluids. Our analysis highlights the operational shift from trucks toward water transfer by pipes and hose, creating a significant new market opportunity in surface water transfer.
Lessons from Operation Pluto
Recent observations of the evolving market for water distribution around the oil field seems analogous to the challenges faced by Allied forces in World War II and the development of Operation Pluto. Between 1942 and 1945, Allied commanders faced the monumental supply chain challenge of pumping gasoline from southern England across the English Channel to the troops on the main continent of Europe. In response, smart boffins from both academia and industry in the United Kingdom developed, piloted and deployed a pipeline under the ocean, code named Operation Pluto (see page 28).
The traditional method of laying pipe for fluid transfer by welding rigid pipe sections together was not feasible. As a result, leading engineers and scientists in the U.K. took lessons from the recent deployment of transocean telecommunication cables to develop three key technology advances: a flexible fluid transfer pipe system, robust and reliable interconnections and, most importantly, an efficient pipelay or deployment methodology.
Operation Pluto enabled the Allies to deploy a 1,000-mile network of pipe from the U.K. to Europe, enabling a total of 5 million barrels of fluid to be transferred to key resources. It has been called one of the greatest ocean engineering achievements of World War II and has been cited as a key operational turning point for Allied forces in Europe.
Fast forward 70 years, you will see an analog with fluid transfer, pipe infrastructure and operational strategies needed to address the unconventional oil and gas sector’s water management challenges. The pressures of water availability and disposal are making well operators acutely aware of the role water management plays at the fulcrum between the industry’s social license to operate and the economic performance of a well or play.
In response to environmental and economic considerations, unconventional oil and gas operators are looking at direct reuse of flowback and produced fluids as a likely solution. Today, approximately 16 percent of all completion fluids are comprised of recycled wastewater, and IHS’s outlook calls for this to double by 2022 in its 2013 study “The Future of Water in Unconventionals – Water Management Strategies in the Continental U.S.” The reuse of this wastewater as completion fluids in ongoing drilling and completion programs has shown to help offset escalating water management costs, in addition to positively supporting public perception of the industries’ water stewardship within the sector.
Water Management for Unconventional Oil and Gas Wells
Looking at the water management lifecycle for unconventional plays, IHS finds that transportation of aqueous fluid — including fresh or brackish water, completion fluid, flowback and produced water — is a key operational and logistical task. Through analysis of a typical well’s capital and operating costs, IHS estimates that water transfer and transportation under certain circumstances can account for as much as 80 percent of the total water management costs, according to its 2012 study “Water Management in Shale Gas Plays.”
Driven by the need for field flexibility, truck-based hauling of oil field aqueous fluids has historically been the primary mode of fluid transportation, however a number of environmental and economic concerns are at play to erode this market spend. While truck transportation is costly in some regions due to distance traveled, additional concerns include noise, environmental pollution, road degradation and an increased risk of automotive accidents. Topology, weather extremes and complexity negotiating easements can play a big role in the success of the surface transfer of water. Supporting ongoing drilling completion programs, lay-flat hose (page 31) is becoming increasingly popular as operators seek a water transfer option for wastewater that is both dependable and easily deployable.
Regional Analysis of Water Management Solutions
Beyond trucking, operators are now faced with a number of options regarding installation location (surface or subsurface), material of construction (aluminum, high-density polyethylene, nitrile) and duration (fixed or temporary). IHS’s recent analysis of the full water management market shows how variable the operational complexity of different plays can be. As such, some regional examples may provide a guiding framework.
The Permian Basin in northwestern Texas and southeastern New Mexico has significant limitations around freshwater sources to make up completions fluids. This constraint to water sourcing — the front end of the water lifecycle — has led to an increase in adopting direct reuse of flowback and produced fluids. Pad-to-pad transfer of wastewater for reuse in the next completion has quickly become a leading best practice.
One example of this is in the Wolfcamp play in the Midland Basin (within the Permian Basin), where an operator uses 3-in. high-density polyethylene line to transfer flowback fluid and produced water from the producing well to a temporary storage facility consisting of 30 fracturing tanks. The water is aggregated and subsequently transferred through the same pipe for use as new fracture fluid. Today, this particular operator is successfully sourcing approximately 20 percent of its completion fluid needs through the use of recycled wastewater.
In contrast to the source-water constraints of the Permian Basin, wells in the Marcellus shale play have significant constraints around disposal of oil field wastes due to the limited number of commercial underground injection wells in Pennsylvania. Operators have to balance the cost of hauling waste many hours to Ohio for disposal, against the cost of exploring options for direct reuse within ongoing drilling and completions programs within the play.
IHS has seen a significant increase in the adoption of direct reuse of flowback and produced fluids in the Marcellus. In 2008, relatively little wastewater was used for completion fluids. By 2011, 14 million barrels of wastewater was identified for direct reuse. In 2012 that number grew to 24 million barrels, according to data from the Pennsylvania Department of Environmental Protection. Negotiating the relevant easements with the many individual landowners necessary to provide pad-to-pad surface transfer via pipe has been an obstacle in Pennsylvania. Yet, many more operators are now reporting the shift from trucks to pipes in an attempt to reduce truck traffic, road wear and environmental pollution.
With water stress and disposal limitations driving increased direct reuse of oil field wastewater, IHS is projecting a significant growth opportunity within the water transfer market. Today water transportation, in the study area, including both trucking and water transfer, is a $25 billion business. While drivers for a shift in spend vary for each play, IHS is projecting a modest 4 percent growth in truck transportation market and an increase of more than 30 percent in water transfer spending from 2013 through 2022.
While not of the same scale as Operation Pluto, innovation and operational developments can be seen in the unconventionals landscape. To address these new water challenges new pipe materials, technologies and advances in pipelay systems are driving the robustness, reliability and installation efficiency of pad-to-pad water transfer.
Three key actions have uniquely supported this shift:
• The transfer of technology/approaches from outside this industry — namely, the adoption of lay-flat hose concepts from the agriculture irrigation and firefighting applications.
• Entrepreneurship and product development, driving robust, reliable field-tolerant solutions suitable for the unique issues in the oil field.
• Customization and innovation around operational methodologies, supporting increased efficiency in laying these systems throughout the operational region.
World War II drove technology transfer from the telecommunications industry, with the development of new flexible pipe technology — coupled with the need for rapid installation — yielding a novel floating flexible pipe deployment system, as shown on page 28. The unconventional oil and gas landscape today is opening up new energy frontiers and driving a resurgence in North America manufacturing. Furthermore, the unique operational and supply chain challenges faced in the unconventional landscape are fueling innovation, entrepreneurship and environmental stewardship through the development and adoption of new fluid transportation systems. The image at the bottom of this page provides an example of this innovation in the adaptation of lay-flat hosing and customized deployment systems used in oil and gas drilling and completion activity. This challenge and growth opportunity is one of many within the water management business today.
Marcus Oliver Gay is Research Director for Water Information and Insight at IHS. He is an expert in water and wastewater treatment and in new technology developments within the clean-tech and energy sector. More information about the studies in this article can be found online at www.ihs.com/waterunconventionals.